Gold traded steady on Tuesday following its biggest one-day rise in two weeks, supported by hopes of a U.S. solution to its fiscal problems and Middle East tension, but weighed down by a firmer dollar as a result of France's rating downgrade.
Financial market sentiment has improved in the past two days after U.S. lawmakers expressed confidence that Congress could reach a deal to avert automatic tax hikes and spending cuts in early 2013, which could otherwise trigger another recession.
Rating agency Moody's stripped France of its top-notch rating, chilling the euro which had rallied to its highest in nearly two weeks on Monday and pushing the dollar index slightly higher, weighing on buying interest in dollar-priced commodities from investors holding other currencies.
"People are feeling a bit at ease about the budget talks in Congress," said Yuichi Ikemizu, head of Japan commodity trading at Standard Bank.
"But gold is in a tight range between $1,700 and $1,740 until we see a result of the talks at the year end, as the 'fiscal cliff' is the focus of the market."
Spot gold was little changed at $1,732.59 an ounce by 0707 GMT, after rising more than 1 percent on Monday.
U.S. gold traded nearly flat at $1,733.10.
Technical analysis suggested spot gold may hover below a resistance at $1,738 per ounce for one trading session before breaking this level and rising into a target zone of $1,746-$1,749, said Reuters market analyst Wang Tao.
CITI SEES GOLD AT $1,749/OZ IN 2013
Citi expected gold to rise to an average price of $1,749 an ounce in 2013 from 2012's $1,679, peaking in the first quarter at close to $1,800, as the improving U.S. economy and a stronger dollar limit the upside, it said in a research note.
"Gold may see another short-lived bounce in 1Q13 from further Fed action to replace the ending OT2 (Operation Twist), but signs of fatigue are increasingly apparent," the report said.
It forecast silver to average $31 next year, down from this year's $31.30, and to further decline to $26.50 in 2014, as demand picture is expected to remain slow while supply may continue to rise.
Spot silver barely changed at $33.13, after rising 2.5 percent in the previous session.
Worries about Greece's debt crisis eased after Athens approved laws to enforce budget targets and ensure privatisation proceeds are used to pay off debt, seeking to appease foreign lenders before a critical meeting of euro zone finance ministers.
Some constructive economic data also helped support market sentiment. U.S. home resales rose in October and a gauge of homebuilder sentiment climbed to a six-year high in November.
Tension in the Middle East is buoying safe-haven demand in gold. Israel's leaders weighed the benefits and risks of sending tanks and infantry into Gaza after six days of Palestinian rocket fire and Israeli air strikes killed more than 100 people.
Holdings of the gold-backed exchange-traded funds edged down to 75.406 million ounces on November 19, not far off last week's record high of 75.421 million.